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Basic Cryptonomics 101: The Value of Liquidity
#Crypto #Cryptocurrency #podcast #BasicCryptonomics
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Episode Transcript
[00:00:01] Welcome to Crypto Talk radio, the podcast for everyday investors like you. Visit us on the [email protected]. dot and now here's your host, Lyster. Thank you for that, Bailey. And welcome, everybody out there in crypto talk radio [email protected]. dot bright, bright lights in the city. I am dialing in with, I'm fighting, not ranting. I don't want to rant today, but it's kind of important because we all need to learn these life lessons that help us all grow as individuals, strengthen our positions, help us understand life and all the nuance and frankly, bullshit out there. I am. I'll share a story quick. It won't take long.
[00:00:49] When I saw I'm looking a little bit more cryptocurrency things, there was a couple of projects caught my eye out of the random. Okay, let's be honest, I was bored. Okay. So I was bored because with my endeavor, I'm still working. We're now doing an exciting project, but there's a lot of flux with some people and some nonsense where I had to, I basically had to chew out the person that I work with because it was, it was getting to be a clown show. And so that bored me. You know, this bores me, kind of like prince.
[00:01:24] Then I started looking on my crypto portfolio and saw a couple of things and said, okay, I'll just get some money and some stuff and see what happens, right? So I turn $2,000 into $4,000 and you're listening like, well, Leister, crypto talk FM, tell us how to do that. Here's the funny part of this story I've been telling. If you knew, welcome. But if you've not, if you're not new, I've been telling you how to do it. Some of you have listened. Some of you have not. I'm hoping more will listen because I've given every tip and trick. I'm not doing anything spectacular. I'm not doing anything magical. I will take a victory lap because I do watch various youtubers. By the way, da Vinci changed his format and I can't stand it. I much prefer the colorful painting in the background of a very wealthy looking mansion. I much prefer that than the one he's going to. I understand he lost a few, a few viewers, but I don't think that. I think that's just YouTube. I wish he hadn't changed because I thought his old format was better. And so now I'm kind of turned off on his. And then Adam coins. I love his coverage. It's just he's too damn short. He films it on his phone, too.
[00:02:31] Everybody's changing. Everybody's just. They're trying to be fancy, and everybody's doing the same thing. You notice everybody's doing that same stupid neon thing in the back. It drives me nuts. It's like, come on, man. Don't. Is there nobody who wants to be unique and just stand out in a crowd instead of following everybody else? This is also why I didn't want to rant, but this is also why I wish I could finish the freaking studio. I can't find a contractor that wants to smoke. We're almost done, but I still have to do the flooring. I got to do some refinishing of things. I've got to get my new light switch mount up there, and then move some desk stuff around. And then this room needs all flooring. I gotta change the boards. There's. They jacked up the floor choice. There's so much work. Like, I really want to embarrass some of these cats, you know? But I don't. I can't find contractors to do it, and that's part of my issue. So during this turmoil, I've been looking at cryptocurrency, and I see these projects, and nobody's talking about them. And, of course, I make thousands of dollars. There's all basic trades. I'm not doing anything spectacular, but I have been telling you guys what to do that I'm doing. I'm not doing anything amazing. I'm doing the same stuff I was telling you guys to do. Now is the time to be doing these things. Now's the time to look for these opportunities. I am less excited about Ethereum than I think. I hope that I would be there. Starting to let me down. And I don't know what's really driving, because it should not be suppressed as long. Something's weird, and I. I watch it, but I'm disappointed. I felt like Ethereum should be much higher than it is. Maybe some people are listening to the show, you know, they're pushing back on idiot Vittlek. Maybe this is a, you know, hey, you keep dumping already. I remember I said there were whales that dumped out after he dumped on your heads. Maybe that's what it is. Maybe it's just the whales are just like, screw you, bro, and they're not gonna come back, and they're just going to other projects, and that's a lot of wealth that was in the project. When it dumped, when it ran up in 2021, and then it had the, you know, drop down to like a thousand recently. And then it climbed back somewhat but never got back to its peak. And perhaps people are just there rebelling against the idiot vittling. Maybe that's what it is. Maybe this is. Maybe this is a sign of the times. Do I think Ethereum's done? No, but I'm surprised at how long it's been since it hit 3000 or 3500, you know, because there's projects on Ethereum that I think are good projects and they're not going to be able to run up without additional, you know, liquidity. Which brings me to my topic. I am going to be spending less time on news. There's not a lot of news, and more on some of this educational, basic cryptonomics 101 stuff. So that's of interest to you. I will be focusing that targeting liquidity because I think people don't understand it. And no youtubers talking about like they should. Coffeezilla did a really good one. Nobody else has talked about it, so I will be doing that as a service for this episode. Do check our weekend episodes for the Saitama crap out as well. That's entertaining stuff.
[00:05:28] First, let's go ahead and look at some numbers. Coindesk.com dot we're going to zoom out to the month chart for bitcoin because bitcoin had a much better run of it than again than ethereum did, for no damn reason that I can speculate. But bitcoin currently hovering around the 67 and a half markish.
[00:05:47] I saw that bitcoin, it ran up and then came back down again. There were some people that claimed that bitcoin was en route to 70,000. And I think on my last one, I was targeting like 68 on my last week. Well, here we are, 67 and a half. I mean, at what point do I do you get my credit? You know where I'm calling these things? And the funny thing is, I'm not even looking at the, like, I see every youtuber do the same thing. They pull up the graph, they look at either RSI or Bollinger, or they do the lines over the tops and the bottoms and they say, okay, it looks like it's going to break out and then it doesn't, you know, and then they'll say, well, things happen.
[00:06:25] I'm not begrudging because again, it's all kind of speculative anyway, so I'm not, I'm not criticizing them. I'm taking a victory lap, is what I'm doing because I got this one right, because I didn't see momentum enough to get to 70,000 in what I was looking at, which is everything. I'm looking at the graph over a month. Spanish also, I know some of them zoom out further than the. Like, they'll do like a week or they'll go further than a month. And I don't know that that's accurate data. If you only go off a week, especially with bitcoin, it feels like it's too volatile to really predict off of. And if you go further than a month, it loses sight of recent news, if that makes any sense. The month felt like the best visual of the real trend of what's going on. But even most recent, if you look at the month right now.
[00:07:16] So if I zoom out to the mutt chart, we had a major dip down to the 60,000 mark just twelve days ago, so. But. And there was events behind that, obviously, but it recovered. So the story it told me was that the dip was temporary prior to that, then. So if I go back to, let's say three months prior to that, we had a dip and it went down to about the 53 ish. 53,000 ish mark. And that was in, uh, second week of September, I believe it was. And then it started climbing back up, did a basic dip, but not a great dip, and was on an upward climb. So it looked to me like, okay, it's upward, but it's not. It. The strength is not there because if I'm only going from 53 and then a month later I'm only at 60, I mean, you can. This is basic velocity, you know, solutioning, you look at how quickly does it get to certain thresholds, right. If you knew on a straight, if I had a straight road and it goes for 100 miles and there's no cars on it, and you got a sports car and, you know, it goes 240 miles an hour, one of the measures you want to know is how long does it take? Zero to 60. Right. How long does it take me to get to 60? And that kind of gives you a sense of the power of the car. Well, you obviously are not going to be able to push a Prius to 60 degrees by too much because it's not built for that. Right.
[00:08:34] I look at crypto in kind of a similar way, in a weird way, because if I look across a month span and I see that week over week, it's only going up by like $100 or $200 or $500 or something, especially with bitcoin, when it's supposed to be thousands of dollars of climb, that tells me velocity. It tells me that there's just not enough velocity to climb any faster, which then I can predict. If we assume the same velocity rate, it means it's not going to climb too much faster either. So I should expect a more reasonable or conservative amount of increase, assuming it's an upward trend. If it's a downward trend, I assume that the downward trend is temporary because that's what the history tells me. There's never been a situation that the downward trend, let's say 2024, has extended past like a week or so since I know that if I'm looking at the month, that means even if I hit a downward, I'm going to recover. And every time it's recovered, it's recovered stronger than the last dip. So these are basic observations looking at the graph. But the month chart's the best way to see that information. Again. Too long and it feels like you're losing importance of recency of events and information. Too short and it feels like it's too volatile to really get a good sense of what's going on. Hopefully that's clear. That's one of the techniques that I'm describing in what I'm doing. I'm just looking to see a pattern. And the pattern, I make a prediction off the pattern for the next. Some will do that. You'll see them take a little snapshot of the graph piece segment and they'll drag it over here to kind of estimate where it's going next. But even that's imperfect because what we saw prior to the FTX debacle is that every graph was telling us that we were going on a strong upward trend. And then when things happened, just before we knew what was going on, the graph started to tank. That's because certain people already knew what was happening on the inside before the news got more widespread. Plus some news outlets, people are going to notice them before other people and so on. And so, as these events happen, how they spread impacts our perception of what's going on right now. For example, if, let's say, right, the election, right, we get to November, election is going to happen. The first thing that happens is we get some, an AP will do it and all these will, they'll put up an image of the map, of the US map, and they'll start coloring each map according to who is projected to win that state. And as a result, they'll get those electors. And as a result, how close are you to the 270 or more that you need in order to be elected president. But it's a projection until everything's wrapped up. What happened in 2020? Now, they were doing all the projections, and initially it was states would project for Donald Trump and then all of a sudden it projects to Joe Biden. That's where the whole claims came in from Donald Trump, because you saw in certain states that there was ballot stuff going on, there were cameras that didn't work. There were machines that were breaking down, there were duplicate mail in, ballot sent over. There was laws changed where the id was not required. There was all sorts of sketchy stuff that was going on that didn't make sense at the last minute. And then because it was the pandemic, the mail in ballot was the preference. And so then there was delays in receiving the ballot, even though normally, traditionally there has been, there's election day. That's why it's called that. But really it was called that because that's the day that we are supposed to submit our vote. Many of the people submitted it prior, but the mail was delayed. And so what the government was trying to do is make accommodations to make sure no vote was left behind. The unfortunate fact of this, though, is that it skewed the perception of who was winning. Because initially you saw that there were segments of states, yes, this is Donald Trump. Donald Trump, that infamous graph where it just immediately jumped up. And that's because they get a whole batch of these mail in ballots at the last minute. Or Joe Biden. That's why I was razor thin in a lot of places, because initially it was like, yep, Donald Trump, Donald Trump, Joe Biden. And that's when Donald Trump's like Freud, total Freud. That's the same thing here. That whole image that they do when they're analyzing the graph, it sounds good, but that's assuming there was no other situation thing going on, like a pandemic, like a closed shutdown of businesses, like people getting sick or something else, some news that we don't know about. There's all sorts of variables that come into play that skew the perception of what's happening. In mine, I'm simply looking at the last month. I look at what's traditionally happened. I take into consideration if there's anything I'm aware of that's coming on the horizon. And sometimes you can't know, like the Voyager situation. Okay, I try to account for that using some sort of a skew. So, for example, if I knew that, it appears to me that we're going to go up to like, I'll do this right now. So looking at the month chart, we're currently at 67 and a half. Okay. Over the last 24 hours, we had a low that was higher than where we're currently sitting, but then it readjusted. So we start at just shy of 67,000. We go a little bit up, then we dip down. So then we hit the 66,000 mark. 66.
[00:13:59] And then we back up to 67, eight, but then we're trending downward again.
[00:14:03] Well, this throws it off because I can look and say it looks like we're heading downward. I'm not going to say it looks like we're heading downward because when I took a look at all of the different data elements, especially over all the other coins that are out there, it actually looks like we should go back up because the bounce that we experience, that range between the low and the high, is so slim, it's only a range of like $800. So if that's the case, that means I would not expect it next week to dramatically shift more than a couple thousand dollars because in this one day span, it was only $800. So I wouldn't expect a significant climb unless if there's some significant event I'm not aware of, one that would be forthcoming other than, you know, some sort of rate movement from the government, which I don't expect. Right. We hear about a housing bubble. I don't hear that happening. We hear about the government giving money away. I don't hear about that happening. The only other thing that will be the election that I can think of, and that's not here yet. Now remember, people told you this is, quote, October, where we're supposed to have this dramatic climb before the end of the month. And I said, I think we might not get such a significant climb. We certainly got a climb, but not to the degree that people have been speculating. I could still get that wrong, but it's, that's what people are saying. October, we should be going up to do. I don't see it yet, not in the movement of the graph. That said, though, over the last week and a half, there has been a significant climb between 60,000 up to the current 67, but that's still over a week and a half. You know, you're talking about a day. So even if I grant that, that means for the end of the year, I would expect at most maybe 73, 74,000 at the highest. I'm going to be more conservative, though. I'm going to say we go down a little bit more, then we possibly climb up to 68, 69 ish, drop a little bit more before I do the next episode. That's my guess on it. I don't think we're going to have the major run that people have been speculating is going to happen. Perhaps I get that wrong. I don't know.
[00:16:14] We also have to understand between now and the next week that I do this coverage. And I said we have to understand that there's some sort of a critical event that causes price movement one way or the other, positive or negative. An event such as the event that happened with Transact, a data breach affecting 93,000 transact users. Transact, for those that don't know, is an on ramp service. It's used by many of the major mask tools that are wallet rather tools that are out there. So what they do is when you need to do a trade, what they're doing is there's a piece that allows you to buy cryptocurrency with fiat. And I don't use these at all because I. First of all, what I want is I give you the card thing, you give you the crypto thing, and we're done. Instead it's. Yeah, it's easy. Just give us your card, you're done. You get in there and it's like, all right, let's do a Kyc. What's your email? Need to upload your id. We need a phone. We can't read the id. Do, do, do. And then we hold that. There's been stories where they hold the crypto because we can't verify your identity because it's racist against dark skinned people. These, I don't use the service, but I'm familiar with it. And I'm describing that. When you go to buy cryptocurrency with a fiat, you know, form, they're the service broker in some of these. Not all, but some of these wallets use that in order to get access to those conversion tools for converting fiat into cryptocurrency or vice versa.
[00:17:43] In the back end, then when this service interacts, it's just basically a handoff. It's basically pairing you up with different survivor service providers. There's a couple of them, I forget the name off top of the head. There was one I was using in gate IO. It starts with the B banks. There you go. There's a couple of other ones that this one just says, which are the ones that are available? Which are the ones that provide the best rates for you because there's usually a fee to do this, because they credit card companies charge a fee. So this is just the middleman of getting you access to, you know, the KYC that's necessary to get access to the card service. You can't go directly to the card service. It always has to go through some middleman. So that's usually a central exchange. That's the middleman facilitating the KYC. Or it's a service like Transact. Transact got breached. It actually was another rogue developer, and I gave a story about this before on a different breach that I forget off top, but a rogue developer, and they're using a work laptop for personal reasons as a data breach for these people. It only affected your basic information. It didn't affect any of the KYC information. Like your. Like the serious KYC information, what they said was it's quote names and basic identity information. Names and basic identity information tells me it's probably going to be your name, email address, possibly a phone number, possibly a mailing address. I doubt the mailing address. Probably it's going to be name, email address and phone is my guess, for whatever they request. Because again, I don't go through this garbage.
[00:19:13] Part of this, they said in what they do, is this is a mild situation. There's no sensitive issue. We should not expect serious breaches as a result of this. It only affected a small percentage of the user base. There's no bank statements, there's no Social Security numbers, there's no credit card. They claim there's no emails or passwords. I question, though, that there's no email because if you get access to an account at this level, you'd have the email is the first thing they ask you. So the only way that they would not have been able to get access to the email is that they don't actually care about the email, or they discard it after you do the process, which is possible, but I know some of them, and maybe this is just the way transact build theirs, but I know some of them, they'll store it to create a reusable, so you don't have to go through the process. Again, it's possible transact just passes it off to whichever third party and then they purge their record local so they don't recall or remember who you are each time. That's possible. If that's the case, kudos to them for that architecture. They. Again, they claim there's no emails in flight. I find that questionable, but it's possible, based on however they built this business.
[00:20:23] Second, and this is just an update or a follow on? I did an out of cycle update recently about Ben Coin and I gave the audio snippet because I knew people wouldn't believe me. From Ben Armstrong claiming that the Ben coin was, quote, dead. And he made the statement that allegedly devs stole a liquidity out of it. And it was kind of weird. His messaging gave the impression that this was something that was known before this call that the liquidity was taken. The treasury called out, which I wasn't familiar. There was a treasury, but the treasury was taken.
[00:20:56] Tokens were taken. That hit network had tokens that they dumped on it. Millions and millions worth of dump. I didn't know anything about the deeds, what I'm saying, and somebody on the comments brought up a good point. It's like that makes it a rug pull. It doesn't matter if he did it, but it's a rug pull by definition. Now you can still trade it. It's just not a good idea because there's no liquidity, which again, is going to be part of my episode and information I'm going to share. And I thought the bencoin situation was a good preface to that conversation.
[00:21:27] When the liquidity gets taken out of the project. So there's two parts of this. There's the cells that he's claiming come from hit network that apparently were hurting the project. Then he claimed that the developer had taken liquidity out of the project on the back end. I'm curious though, if he had delegated everything to other people, like he wasn't really overseeing it, because he had said in multiple things, I saw that he was going to see it through to the end. He even put bets up saying he would bet somebody five bitcoin that it was going to be a top one. Whatever, whatever, whatever. Obviously that happened. Hopefully that person called him out of the bet and there were other people, like there was somebody who apparently, like one of the admins or something that said, you know, you can't leave people high like this, man. This is wrong. You got to do something good. Do, do you know, and I said, look, I understand how you feel, but you had to know this was likely to happen because people, even in the, in the process, when others would talk about it, said he stretched too thin, there's too much that he's involved in the bromance situation and all these fights and everything. He's not focused on the token. And it takes, as we learned from many of these developers, it takes a very strong, dedicated focus to make the thing successful. It's nothing. Not just about put it out there and bank on your name to make it roll. And unfortunately, because he's so high profile, that put the onus on him to really show up. And so a lot of people are pissed off. I saw, I just happened to step through and I happen to notice on believe somebody was calling him out and saying, hey, nothing about these outflows happening. Police kind of deflected and said, well, you can ask Ben about it, hey, it happened. And apparently they got a plan, but I don't know anything. Got to ask them, which is a valid answer. But my point is that it's all now piling on him because again, like many some of these others that have crapped on leaves, he's being pointed at because he covered a lot of these things, strongly covered a lot of these things.
[00:23:19] All of these different cracks in the armor, as it were, caused me to then dedicate today's episode, the vast majority of the remainder of the episode, to this concept of liquidity. Because it occurred to me as I was working with a project which I'll give a shout out, that's Hotchko. Because I think it's a, I think it's a generally good community with a bunch of chicken littles in it, but I think it's generally a good community. A Hotchko that I just stumbled across upon, and I did a basic analysis. I didn't go deep because I knew it was a full coin. Since we can't say shit coin, it's a vol coin. It's just a, it's just out of there. And if you don't know about Hotchko, and I'm not trying to get you to buy it, I'll just explain because it's part of why I'm covering this topic, the story behind Hotchko is, and I didn't go deep in it, but apparently there was a dog named Hotchko that waited for its owner for, like, ten years at the train station or something until it died. And apparently the owner had already passed and the dog didn't know this. And so there's actually a photo floating around of the dog dead and a bunch of people around it. I don't know if it's legitimate. I don't know anything about this and didn't know about this story, but that was the origin. Allegedly. It was a pre sale. It launches. It has unreasonable, I mean, geez, unreasonable levels of climb. Like, I hadn't seen anything like that since Pepe. At first, it was getting the pace, the rate it was out of control. But I noticed one thing in particular. The liquidity was dramatically low. You're talking 200,000 in liquidity, but yet the volume is 4 million. Volume. This, folks, is the reason I want to have this conversation. For all disclosure, I did buy some of this. I did sell for profit. And that's why I was able to double the money, because I treated it like a gamble. You roll the dice, and I struck it because I knew how to read it. I knew what was going to happen, because I learned the importance of liquidity in watching these projects. And I learned how the volatility can either play to your favor or play to your detriment. This is the information I wanted to share because I thought it might help other people that might want to get smarter about the trades they do. Way back, I used to take the stance of avoiding certain projects because I felt like, you know, certain ones, it's obvious you're going to get ripped off. I started to adjust. There's still this mantra. There's certain ones where it's like, stay away from this crap, you know, side of chain, right? But there's other ones where I said, maybe I need to think about this from a different angle. And I created a saying, this is years ago. Just because you make money doesn't make it not a scam. And just because it's a scam doesn't mean you can't make money. In a sense, you can look at something and feel like it's a scam, but as long as there's nothing preventing you from buying and selling it, as long as it's not got ripoff fees and all sorts of garbage, can still make some money off this business. And so I thought this was a chance to create a new strategy, a new trade strategy. When I saw Iggy Azalea putting a mother out there, and it initially had the pomp, and then it crapped, and then she put an article up and she said, I'm going to work to make this thing succeed. And she's worked to make it succeed. She has not left it behind. She's not abandoned it. She was accused of a lot of stuff that I don't know anything about. I didn't follow it. But she's worked to try to make it successful because she felt like, this has to win. There's no way I can't make this win. I'm going to make, use my name to help this thing go. And she largely inspired other people. You know, you got the Andrew Tate business and other people now spinning up tokens, Trump doing world liberty. Everybody's got this mantra now, and they all better be careful. But I think the confidence increase is coming from the idea that Gary Gensler is going to be leaving office. Well, let's take on face that there's going to be more of these tokens show up if Gary Gintz release. Let's take it on face that there's going to come a time, there's going to be more confidence rolling out crypto currencies. That means there's an increase in the risk aspect of the cryptos. So the first thing you look at the team, if you've, if it's getting too much unreasonable hype on social media, I avoid it. Right? Hodgko I couldn't see any hype on social media. There might have been there. I didn't see it because I'm not on Twitter, but I certainly didn't see it. And I didn't see very many people talking about it, except on Coinmarketcap, which is where I stumbled across, and I randomly stumbled across it. I don't even remember how I got to the damn thing, but I didn't see very much chatter. Somebody chimed in and said, yeah, they have over 10,000 followers, and this not the other fresh out the gate, and there's nothing there. And I didn't see anything. This is the person telling me, well, if you got that many followers fresh out the gate, you did a pre sale. So that doesn't surprise me. So it was a pre sale, but it wasn't like, you know, when we saw, let's say, Bonk. Okay? Bonk had crazy amounts of hype on social media. Unreasonable hype on social media. It went nuts as what it was. So did dog with hat. It went crazy nuts. You know this one? Nothing. There was some cheddar, but not to the degree of something like this. So already there, I said, okay, nobody knows about it, or very few people know about it. It had a pre sale. The pre sales are risk. That's level two. If it did a pre sale, that means there's going to be large bags sitting in the thing. And that means they're going to dump. We know they're going to dump. We just don't know when. Right? So we look at the project, we say, what's the health state of the overall data in the project? How many tokens does it have? How many holders are holding large bags? How much volume is in it now? And what's the trend of the volume? What's the market cap, which tells us how much is bought into the thing and most importantly, the liquidity. But second to that, the liquidity compared to the volume and compared to the market cap. Here's the trick of this. We know as a basic rule, and if you didn't, you do now, if the liquidity is low in general, it means it's going to be volatile. You don't know why. Here's the trick. Here's the magic trick of liquidity. For those that don't know what liquidity is, there's two ways to think of liquidity. The simple definition of liquidity is that there's something there that can be bought and sold. At the end of the day, it can be bought and sold. That's liquidity. It can be transacted. And there's enough there to transact. In the human world. It is. There's a buyer, and there's a seller, and x amount of buyers and sellers, you want an equal amount. And that's what creates the distribution for liquidity. You want an, you want a fair amount of buyers and a fair amount of sellers, and they're creating a transaction between each other. When people buy, they're giving you their money and they're taking tokens. When people sell, they're giving you their tokens, taking money. So you imagine if I have more buyers than sellers, at some point supply gets constrained. If supply gets constrained, we expect a price crunch, because people are going to say, well, yeah, but it's rare. Now I'm going to ask for more money when I go to sell it to you. Some people are holding for that. So the buyers at some point are going to say, look, I really want this, I'll offer you this. And that offer goes up and up and up and up and up until they say, this is my upper limit. The sellers, they're going to hold off until it's the price they want to sell their tokens. Sometimes it's a market rate. Whatever the market says, that's what it is. Sometimes it's a short rate, as in, I just want to get rid of this. So whatever, sell it short. Sometimes it's a long rate, as in, no, you know, I want $5 for this. I know right now it's worth three, but I want five. And somebody they expect will buy it, because at some point it's going to be a supply crunch.
[00:30:58] I said in an old episode for cryptocurrency, the greatest thing you can do is to play the game mule, if you can find it. Unfortunately, they keep screwing it up. But the game mule is an old PC game. The game mule is exactly what happens in liquidity, and it gives you a great understanding about how the process generally works. Well, what happens when you get to decentralization?
[00:31:22] And I put that in quotes because we're not really decent in decentralization. We don't have humans. We have what's referred to as automated market makers. Automated market makers are nothing more than contracts, they're just, it's code. And in order for that to do the work on behalf of humans that have put a request in, they need access to the liquidity pair. That's done by a liquidity pool. The liquidity pool is done by the dev. It can be done by you. If you have enough of each, you can contribute to the liquidity pool for your contribution, you get a portion, the transaction fees proportionate to how much you put in. But you have to have both in the pool. That can be whatever you really want it to be. Frankly, you can have, let's take, let's take bonk and pick on it. You can do Bonk and Solana, you could do Bonk and USDT, you could do bonk and USDC, you could do bonk and shib. I mean, there's no limit. It's only whatever that decentral platform allows you to do when you contribute. Let's say if it's a smaller token, you got 50% of the liquidity that you're contributing, and you put those tokens to that platform, they're not in your wallet, but you're getting those transaction fees, it becomes a stream source of income for you. So you can imagine there's an incentive for you to be a liquidity provider. The downside of being, the main downside of being a liquidity provider is that if the price tanks, you're going to lose that money. However, if there's still sell traffic happening and you're the last one standing that's providing any liquidity source whatsoever, you're still going to get the transaction fees for those and you could shore it up. So let's say you had a lot of money, it's a small project and you want to help shore it up and, and hold it so you can contribute more into that pool and add more to support the transactions until it recovers. And then you become the hero because you are providing the liquidity that makes it work.
[00:33:22] What a lot of these token projects get into the habit of doing now is they'll what's called burn the liquidity. You may ask about burning liquidity. When you create a liquidity pool, you do the pair, you contribute it to a platform, they issue you a token.
[00:33:39] That token is essentially the representation of the ability to take back the pool. And you are entitled, as you hold this token, to receive the transactions.
[00:33:50] If they burn that token, they cannot reclaim that pool. It's now gone. It's burned, right? When it's burned, it means that liquidity pool will always be available for that trade as kind of a foundation, a bottom.
[00:34:04] Here's the flaw, although that sounds good. You still need to have an increase in liquidity commensurate with the increase in volume and the increase in market, captain, because the liquidity that's available, that's all anybody can really claim. If you've got a bunch of people, let's say it's a project that's got 5 million in volume and 5 million in effective market cap. I'm making numbers up. If you've got 5 million sitting off somewhere of people that could sell and might want to sell, but you have a liquidity pool of $500,000, there's only $500,000 available to anybody in that situation. That means nobody can, somebody's not gonna be able to sell out, right? So you want increasing liquidity. You want people, whether the dev or otherwise, you want an increase in liquidity. This means that you can somewhat game the system.
[00:34:58] Follow me. If you find a project, however you find it, I don't care if it's Dex tools, I don't care if it's Dex screener, I don't care if it's coinmarketcap whatever. If you find a product, pump, fund, whatever. If you find a project where the liquidity, initial liquidity sets locked, it seems to have a decent amount of initial volume. It seems to have a decent amount of initial traffic. The price is fair in terms of what you think it is, and you can get in to where you're going to be a substantial holder of them. And I'm not suggesting you toss all money, it still should be throwaway money. I'm saying that because of the state of the project, you could be a substantial holder, and you're willing to contribute a liquidity pool that's enough to sustain the expected traffic, and you can convince other people to do the same. The transaction fees that you could potentially get might even outweigh the positive price movement of the token. What do I mean? If you take the transaction fees, right, we know it's buys and sells, we know somebody's going to dump off the business. The point is, you're getting transaction fees for this that's happening. You get your share. And if you're high proportion, I'm saying that it might actually outweigh the price movement of the token and the value, the appreciation that you might realize from the token itself. Just by doing the liquidity pool, the risk is that you could also lose what's in the liquidity pool if the token tanks. It's all gambling. You're rolling the dice, but you're rolling the dice whether you do buy, sell off the market, or you do spot, you know, straight trade, or you do limits, or it doesn't matter, it's gambling anyway.
[00:36:38] All I'm saying is that there's different ways. As I say, you can make money off sales, you can make money off buys. It's not just about buy. That's not what bullish means. It's finding an opportunity to make money on something. And I'm giving you the spoiler. The hint of the cheat code.
[00:36:55] The state of the liquidity compared to the volume compared to the market cap, is the way you can identify how much profit potential there could be and how much risk there is. When you get a project and the liquidity is already substantial, you know, you get a 5 million in liquidity and the volume is 10 million.
[00:37:17] It's not, the money's not going to move very much. You're not going to see very much price movement. So patience is going to be your key. You have to hold it longer because you're waiting for either supply crunch or significant demand to shift the price to make profit. And that just may take time. Or you go out to the volatile ones looking for the opportunity for it to shift rapidly so that you can cash out and make some profit. If all of that went over your head, don't worry about it. These are somewhat advanced techniques. I wouldn't say greatly advanced, but they're somewhat advanced techniques that do require a bit of maturity on your part. They require that you think about trading differently than you've been taught. It means that it's not just about buy buy.
[00:38:02] It's not just about looking for green candles. I certainly don't want you to do that. It's about understanding the health of the project, financial health of the project, as a determination factor for how much you could make if you were to get in. And if you have enough of a stake in it, you could contribute liquidity and make just a stream of transactional fees. Well, if you multiply that by multiple different projects, you wouldn't even have to worry about the spot. You're just getting transaction fees fed to you. But they have to be trustworthy projects. And the downside is that it takes time to identify trustworthy products. Until you can confirm they're trustworthy, everything is a strong gamble. So you could do this, frankly, on any of the cores, but a lot of them have, let's say, staking fees or something else. If you do straight staking that you could get, but they require a significant amount. The liquidity pool usually does not, but you're a small player in a large pool. If it's a more long term coin, you're not going to get a good proportion of those rewards.
[00:39:06] Is it worth it? It might be because you could multiply, do it off 20 different things and get 20 streams. That might be equivalent to what it would be on this higher risk one at one pool. Hopefully that's been helpful and beneficial. I'm stressing the importance of liquidity in the consideration for whether or not something is going to be profitable for you, as well as the level of risk you could expect. The bottom line is this. If the liquidity is low compared to the volume, it's a risk. And chances are they're using bots because bots do not contribute to liquidity. Because they're bots. They're just. It's just traffic. It doesn't mean anything. So that's your hint. If it's low liquidity and the volume is high, they're probably using bots to artificially pump the charts.
[00:39:52] It doesn't mean it's not an opportunity. It means it's higher risk because it's somebody there is looking for green candles so they can dump on you is what it is. Somebody that was in a pre sale, somebody that bought big bags and they're waiting for a ten x and they're going to dump it. It's high volatile, high risk. It doesn't mean you lose it because it could recover. So you might just sit on it, stack, wait for the red buy more. Your strategy has to shift. Just understand the simple rule. If the liquidity is low and the volume is high, they're probably using bots to artificially pump the traffic. Using bots to artificially pump it, it's not contributing to liquidity health. If there's no liquidity increase, significant people start buying in because they see the green candles. Liquidity goes to a point.
[00:40:37] Somebody that's already sitting in the project dumps off of it. It's a highly volatile situation. Does not mean you lose your money. You only lose unless until you sell, period.
[00:40:47] Keep that in mind. Look for the projects that seem like they got that opportunity. Just be smart about it. Realize projects are going to go up and down, some faster than others. Look for the basic fundamentals that I talked about first. There's a website, they keep it up to date. They're ideally telling you about who they are. If it's a vol coin, you're not going to get a lot of that stuff. You realize what it is. It's just there to make some meme cash essentially. And that's a higher risk because you don't know who's in it. That could dump on your head. Long as you know the rules of the game, you can learn how to exploit the game to your advantage. And the end game for me is to make sure you take your profits either way because you earned it. If you put money in and you profit, get your money back. My next episode is going to talk about that strategy of profit taking so that you can get better at it. Because once you master profit taking and you break the temptation of FOMO that has been instilled upon you by various youtubers, you will see, okay, he, that's why he's staying calm about this business, because that's really all it is about is I just have to make sure I take profits and let sit ride and I don't have to worry about being a millionaire. You can always be the gambler. Okay, nobody's telling you what dutch cash. I'm still going to give you these tips and tricks because there's going to come a time later, somebody, the government's going to be referencing my material as really, this is the smarter answer and it's the best way to introduce this cryptocurrency thing to the mainstream.
